Balance of payments imports exports and the exchange

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: lance of payments Imports, exports, and the exchange rate ¥ FX $ $ US importing $ depreciating US selling $ Page: 13 £ US exporting UK selling £ ¥ appreciating 1/27/2014 FX £ depreciating $ appreciating GUY SHANI , 2014 - STRATEGY 310 - THE WORLD ECONOMY - SESSION 04 1. Balance of payments The balance of payments? Trade in goods and services Trade in financial assets Current account Exports Financial account Imports Capital inflows • Sale of goods and services to other countries • Income from investments abroad • Purchases of goods and services from other countries • Repatriated income by foreign firms • Foreigners purchasing US assets • US borrowing Capital outflows • US purchasing foreign assets • US lending • Transfers by governments and households 1/27/2014 Page: 14 GUY SHANI , 2014 - STRATEGY 310 - THE WORLD ECONOMY - SESSION 04 7 1. Balance of payments What is the balance of payments? • Balance of Payments (BoP) records all economic transactions between residents of a country and the rest of the world BoP = Current Account (CA)- Financial Account (FA)Balance of Payments always balances! Errors, omissions or discrepancies CA+ FA=0 • Records transactions between Sony Japan and Sony USA • Does not record transactions between Sony USA and Best Buy USA 1/27/2014 Page: 15 GUY SHANI , 2014 - STRATEGY 310 - THE WORLD ECONOMY - SESSION 04 1. Balance of payments Balance of payments and exchange rates Current account Exports Imports CA US exporting less than US imports Less demand for USD USD depreciates 1/27/2014 Page: 16 CA US exporting more than US imports More demand for USD USD appreciates Financial account Capital inflows Capital outflows FA Foreigners buying less US assets Less demand for USD USD depreciates FA Foreigners buying more US assets More demand for USD USD appreciates GUY SHANI , 2014 - STRATEGY 310 - THE WORLD ECONOMY - SESSION 04 8 1. Balance of payments Some examples Mexico is an oil exporter GM buying Daewoo (of Korea) China buying US treasury bonds Price of oil decreases Capital outflow from the US Capital inflow into the US Export revenue drops US FA reduces US FA increases Mexico’s CA reduces Convert USD to KRW Convert CHY to USD Less demand for MX pesos More demand for KRW More demand for USD MX Peso depreciates USD depreciates USD appreciates 1/27/2014 Page: 17 GUY SHANI , 2014 - STRATEGY 310 - THE WORLD ECONOMY - SESSION 04 Agenda 1. Balance of payments 2. Natio...
View Full Document

This note was uploaded on 04/02/2014 for the course STRATEGY 310 taught by Professor Staff during the Winter '08 term at University of Michigan.

Ask a homework question - tutors are online